CFO insight into Q2 2023

Finnfund continued active origination of new investment opportunities in the second quarter of 2023. During the quarter, eighteen new investment decisions were made worth EUR 171 million. The portfolio value was EUR 700 million, representing an increase of EUR 2 million from the year-end 2022.

Inflationary pressures have continued to raise the USD and EUR reference rates. This has generated higher interest income and interest expenses in the second quarter, resulting in an increase of +10 % to the net interest income compared to Q2/2022. The total gross interest income increased by +32% compared to Q2/2022 (EUR 15.3 million vs EUR 11.5 million), whereas interest expenses increased by +92% compared to Q2/2021 (EUR -6.0 million vs. EUR -3.1 million). Interest expenses also include part of the hedging costs, which explains the significant relative increase compared to interest income.

The two first quarters show a total net financial income of EUR 14.1 million, which is a +21% increase compared to last year (EUR 11.7 million in Q2/2022). This is mainly driven by the increased dividend and fund income.

An apparent increase in administration, depreciation and other operational expenses (+24%) compared to last year is mainly explained by higher staff costs due to new recruitments and the opening of the Nairobi office last year. It is also good to note that after the extraordinary pandemic years, the cost structure is returning to normal. The expenses are slightly above the budget (6%) due to seasonal provisioning.

The gross profit before deduction in the value of investments and sales gains and losses was EUR 4.5 million (EUR 4.1m).  The gross profit for Q2 2023 was EUR 0.8 million (EUR 5.1m).

The outlook for the financial year 2023 has turned from positive to cautiously optimistic. As stated earlier this year, we have been looking for two significant exits for the year. One of them has already been realised but the other one has been delayed. In the event that the latter exit does take place by the end of the year, we still forecast that this year will be profitable.

The war in Ukraine, the high rate of inflation and the rising global interest rates will affect the global scenarios. Most likely, the business environment, especially in our target countries, will deteriorate if the global situation remains the same. We are closely monitoring our investees and the global economy and are prepared to react, if necessary.

Olli Sinnemaa
Chief Financial Officer, Finnfund

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Olli Sinnemaa Chief Financial Officer olli.sinnemaa@finnfund.fi